Optimization of a Stochastic Reverse Logistics Network with Refurbishment and Exchange Options

Abstract

Remanufacturing activities are gaining momentum in the manufacturing industry. Therefore, the need for optimized networks becomes more pressing. In this paper we take a profit maximization approach to simultaneously determine the optimal network and the delivery strategy to support remanufacturing services offered to customers.

In order to set up a network, investment decisions have to be made concerning the number, locations and types of remanufacturing facilities. Additionally, appropriate capacity and inventory levels have to be set in order to guarantee a given service level. These network decisions are influenced by the way the remanufacturing services are offered by the manufacturing firm. We consider two possible service delivery strategies: the service provider can either make a quick exchange of the used part by a refurbished one or re-install the original part after remanufacturing it.

The model described in this paper is applied to optimize the network and service delivery strategy at a worldwide manufacturer of construction, mining and industrial equipment.

Keywords: Network Design, Queueing Networks, Remanufacturing, Contracting